If you’re looking to add a top healthcare company to your portfolio, today’s match up in the Motley Fool’s ASX World Cup may provide some valuable insight into what’s right for your portfolio, as private healthcare company Ramsay Health Care Limited (ASX: RHC) takes on medical diagnostics company Sonic Healthcare Limited (ASX: SHL).
Both companies reported outstanding growth for the half year to 31 December 2013, so today’s matchup is likely to be close fought.
Let’s have a look at the key stats:
Ramsay Health Care Ltd
Sonic Healthcare Limited (ASX: SHL)
|Size||Market cap||$9.2 billion||$6.8 billion|
|Operations||EBIT margin %¹||12%||14%|
|Growth||Five year NPAT CAGR²||11.5%||1.2%|
|Balance sheet||Debt/Equity ratio||1.65||0.91|
Notes: ¹Half Year to 31Dec 2013, ²Full Year results 2009-2013
The two companies are too close to call when it comes to their respective EBIT margins. Sonic Healthcare sneaks ahead, but the margins of both companies are expected to increase over the coming years as populations age and existing fixed costs get split over an increasing number of customers.
Goal: No goals
When it comes to earnings growth, there is no stopping Ramsay. The company has grown net profit after tax (NPAT) at an extraordinary rate, from $146.4 million in 2009 to $290.9 million in 2013. Over the same period earnings per share (eps) have grown from 74.1 cps to 135.9 cps.
Sonic Healthcare, for its part, is a much more consistent operator with NPAT growing from $315 million to $335 million over the last five years.
Goal: Ramsay Health Care
Balance sheet and dividend
Sonic Healthcare comes up the winner in a straight comparison of both dividend yield and balance sheet debt. However Ramsay’s higher debt and lower dividend yield are a product of its focus on growth, with shareholders pushing up the price of shares in anticipation that this growth will continue.
This is reflected in Ramsay’s current price to earnings ratio (p/e ratio) of 33, compared to Sonic Healthcare’s more moderate 18.
Goal: Sonic Healthcare
We have a draw! Ramsay scored decisively as a growth focused company, while Sonic Healthcare scored one back as a reliable dividend payer with reasonable growth.
Both companies look fully priced today given their prospects, but are worthy of a place on your watchlist.